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Glossary:.
203(b): FHA program Which provides mortgage insurance to protect lenders
from default; used to finance the purchase of new or existing one- to four family housing;
characterized by low down payment, flexible qualifying guidelines, limited fees, and a
limit on maximum loan amount.
203(k): this FHA mortgage insurance program enables homebuyers to finance
both the purchase of a house and the cost of its rehabilitation through a single mortgage
loan.
A
Amenity: a feature of the home or property that serves as a benefit to
the buyer but that is not necessary to its use; may be natural (like location, Woods,
water) or man-made (like a swimming pool or garden).
Amortization: repayment of a mortgage loan through monthly installments
of principal and interest; the monthly payment amount is based on a schedule that will
allow you to own your home at the end of a specific time period (for example, 15 or 30
years)
Annual Percentage Rate (APR): calculated by using a standard formula, the
APR shows the cost of a loan; expressed as a yearly interest rate, it includes the
interest, points, mortgage insurance, and other fees associated with the loan.
Application: the first step in the official loan approval process; this
form is used to record important information about the potential borrower necessary to the
underwriting process.
Appraisal: a document that gives an estimate of a property's fair market
value; an appraisal is generally required by a lender before loan approval to ensure that
the mortgage loan amount is not more than the value of the property.
Appraiser: a qualified individual who uses his or her experience and
knowledge to prepare the appraisal estimate.
ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in
interest rates; when rates change, ARM monthly payments increase or decrease at intervals
determined by the lender; the Change in monthly -payment amount, however, is usually
subject to a Cap.
Assessor: a government official who is responsible for determining the
value of a property for the purpose of taxation.
Assumable Mortgage: a mortgage that can be transferred from a seller to a
buyer; once the loan is assumed by the buyer the seller is no longer responsible for
repaying it; there may be a fee and/or a credit package involved in the transfer of an
assumable mortgage.
B
Balloon Mortgage: a mortgage that typically offers low rates for an
initial period of time (usually 5, 7, or 10) years; after that time period elapses, the
balance is due or is refinanced by the borrower.
Bankruptcy: a federal law Whereby a person's assets are turned over to a
trustee and used to pay off outstanding debts; this usually occurs when someone owes more
than they have the ability to repay.
Borrower: a person who has been approved to receive a loan and is then
obligated to repay it and any additional fees according to the loan terms.
Bridal Registry: a program supported by the FHA that allows couples to
open ('register" for) a bridal registry account into which family and friends can
deposit gifts of cash; the funds in this account may then be used for a down payment on a
house
Building code: based on agreed upon safety standards within a specific
area, a building code is a regulation that determines the design, construction, and
materials used in building.
Budget: a detailed record of all income earned and spent during a
specific period of time.
C
Cap: a limit, such as that placed on an adjustable rate mortgage, on how
much a monthly payment or interest rate can increase or decrease.
Cash reserves: a cash amount sometimes required to be held in reserve in
addition to the down payment and closing costs; the amount is determined by the lender.
Certificate of title: a document provided by a qualified source (such as
a title company) that shows the property legally belongs to the current owner; before the
title is transferred at closing, it should be clear an-d free of all liens or other
claims.
Closing: also known as settlement, this is the time at which the property
is formally sold and transferred from the seller to the buyer; it is at this time that the
borrower takes on the loan obligation, pays all closing costs, and receives title from the
seller.
Closing costs: customary costs above and beyond the sale price of the
property that must be paid to cover the transfer of ownership at closing; these costs
generally vary by geographic location and are typically detailed to the borrower after
submission of a loan application.
Commission: an amount, usually a percentage of the property sales price,
that is collected by a real estate professional as a fee for negotiating the transaction..
Condominium: a form of ownership in which individuals purchase and own a
unit of housing in a multi-unit complex; the owner also shares financial responsibility
for common areas.
Conventional loan: a private sector loan, one that is not guaranteed or
insured by the U.S. government.
Cooperative (Co-op): residents purchase stock in a cooperative
corporation that owns a structure; each stockholder is then entitled to live in a specific
unit of the structure and is responsible for paying a portion of the loan.
Credit history: history of an individual's debt payment; lenders use this
information to gouge a potential borrower's ability to repay a loan.
Credit report: a record that lists all past and present debts and the
timeliness of their repayment; it documents an individual's credit history.
Credit bureau score: a number representing the possibility a borrower may
default; it is based upon credit history and is used to determine ability to qualify for a
mortgage loan.
D
Debt-to-income ratio: a comparison of gross income to housing and
non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than
29% of monthly gross income (before taxes) and the mortgage payment combined with
non-housing debts should not exceed 41% of income.
Deed: the document that transfers ownership of a property.
Deed-in-lieu: to avoid foreclosure ("in lieu" of foreclosure),
a deed is given to the lender to fulfill the obligation to repay the debt; this process
doesn't allow the borrower to remain in the house but helps avoid the costs, time, and
effort associated with foreclosure.
Default: the inability to pay monthly mortgage payments in a timely
manner or to otherwise meet the mortgage terms.
Delinquency: failure of a borrower to make timely mortgage payments under
a loan agreement.
Discount point: normally paid at closing and generally calculated to be
equivalent to 1% of the total loan amount, discount points are paid to reduce the interest
rate on a loan.
Down payment: the portion of a home's purchase price that is paid in cash
and is not part of the mortgage loan.
E
Earnest money: money put down by a potential buyer to show that he or she
is serious about purchasing the home; it becomes part of the down payment if the offer is
accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of
the deal.
EEM: Energy Efficient Mortgage; an FHA program that helps homebuyers save
money on utility bills by enabling them to finance the cost of adding energy efficiency
features to a new or existing home as part of the home purchase
Equity: an owner's financial interest in a property; calculated by
subtracting the amount still owed on the mortgage loon(s)from the fair market value of the
property.
Escrow account: a separate account into which the lender puts a portion
of each monthly mortgage payment; an escrow account provides the funds needed for such
expenses as property taxes, homeowners insurance, mortgage insurance, etc.
F
Fair Housing Act: a law that prohibits discrimination in all facets of
the homebuying process on the basis of race, color, national origin, religion, sex,
familial status, or disability.
Fair market value: the hypothetical price that a willing buyer and seller
will agree upon when they are acting freely, carefully, and with complete knowledge of the
situation.
Fannie Mae: Federal National Mortgage Association (FNMA); a
federally-chartered enterprise owned by private stockholders that purchases residential
mortgages and converts them into securities for sale to investors; by purchasing
mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers.
FHA: Federal Housing Administration; established in 1934 to advance
homeownership opportunities for all Americans; assists homebuyers by providing mortgage
insurance to lenders to cover most losses that may occur when a borrower defaults; this
encourages lenders to make loans to borrowers who might not qualify for conventional
mortgages.
Fixed-rate mortgage: a mortgage with payments that remain the same
throughout the life of the loan because the interest rate and other terms are fixed and do
not change.
Flood insurance: insurance that protects homeowners against losses from a
flood; if a home is located in a flood plain, the lender will require flood insurance
before approving a loan.
Foreclosure: a legal process in which mortgaged property is sold to pay
the loan of the defaulting borrower.
Freddie Mac: Federal Home Loan Mortgage Corporation (FHLM); a
federally-chartered corporation that purchases residential mortgages, securitizes them,
and sells them to investors; this provides lenders With funds for new homebuyers.
G
Ginnie Mae: Government National Mortgage Association (GNMA); a government-owned
corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae
pools FHA-insured and VA-guaranteed loans to back securities for private investment; as
With Fannie Mae and Freddie Mac, the investment income provides funding that may then be
lent to eligible borrowers by lenders.
Good faith estimate: an estimate of all closing fees including pre-paid
and escrow items as well as lender charges; must be given to the borrower within three
days after submission of a loan application.
H
HELP: Homebuyer Education Learning Program; an educational program from the FHA
that counsels people about the homebuying process; HELP covers topics like budgeting,
finding a home, getting a loan, and home maintenance; in most cases, completion of the
program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from
2.25% to 1.75% of the home purchase price.
Home inspection: an examination of the structure and mechanical systems
to determine a home's safety; makes the potential homebuyer aware of any repairs that may
be needed.
Home warranty: offers protection for mechanical systems and attached
appliances against unexpected repairs not covered by homeowner's insurance; ,overage
extends over a specific time period and does not cover the home's structure.
Homeowner's insurance: an insurance policy that .combines protection
against damage to a dwelling and Is contents with protection against claims of negligence
)r inappropriate action that result in someone's injury or )property damage.
Housing counseling agency: provides counseling and assistance to
individuals on a variety of issues, including loan default, fair housing, and homebuying.
HUD: the U.S. Department of Housing and Urban Development; established in
1965, HUD works to create a decent home and suitable living environment for all Americans;
it does this by addressing housing needs, improving and developing American communities,
and enforcing fair housing laws.
HUD1 Statement: also known as the "settlement sheet," it
itemizes all closing costs; must be given to the borrower at or before closing.
HVAC: Heating, Ventilation and Air Conditioning; a home's heating and
cooling system.
I
Index: a measurement used by lenders to determine changes to the Interest
rate charged on an adjustable rate mortgage.
Inflation: the number of dollars in circulation exceeds the amount of
goods and services available for purchase; inflation results in a decrease in the dollar's
value.
Interest: a fee charged for the use of money .
Interest rate: the amount of interest charged on a monthly loan payment;
usually expressed as a percentage.
Insurance: protection against a specific loss over a period of time that
is secured by the payment of a regularly scheduled premium.
J
Judgment: a legal decision; when requiring debt repayment, a judgment may
include a property lien that secures the creditor's claim by providing a collateral
source.
L
Lease purchase: assists low- to moderate-income homebuyers in purchasing
a home by allowing them to lease a home with an option to buy; the rent payment is made up
of the monthly rental payment plus an additional amount that is credited to an account for
use as a down payment.
Lien: a legal claim against property that must be satisfied When the
property is sold
Loan: money borrowed that is usually repaid with interest.
Loan fraud: purposely giving incorrect information on a loan application
in order to better qualify for a loan; may result in civil liability or criminal
penalties.
Loan-to-value (LTV) ratio: a percentage calculated by dividing the amount
borrowed by the price or appraised value of the home to be purchased; the higher the LTV,
the less cash a borrower is required to pay as down payment.
Lock-in: since interest rates can change frequently, many lenders offer
an interest rate lock-in that guarantees a specific interest rate if the loan is closed
within a specific time.
Loss mitigation: a process to avoid foreclosure; the lender tries to help
a borrower who has been unable to make loan payments and is in danger of defaulting on his
or her loan
M
Margin: an amount the lender adds to an index to determine the interest
rate on an adjustable rate mortgage.
Mortgage: a lien on the property that secures the Promise to repay a
loan.
Mortgage banker: a company that originates loans and resells them to
secondary mortgage lenders like :Fannie Mae or Freddie Mac.
Mortgage broker: a firm that originates and processes loans for a number
of lenders.
Mortgage insurance: a policy that protects lenders against some or most
of the losses that can occur when a borrower defaults on a mortgage loan; mortgage
insurance is required primarily for borrowers with a down payment of less than 20% of the
home's purchase price.
Mortgage insurance premium (MIP): a monthly payment -usually part of the
mortgage payment - paid by a borrower for mortgage insurance.
Mortgage Modification: a loss mitigation option that allows a borrower to
refinance and/or extend the term of the mortgage loan and thus reduce the monthly
payments.
O
Offer: indication by a potential buyer of a willingness to purchase a home at a
specific price; generally put forth in writing.
Origination: the process of preparing, submitting, and evaluating a loan
application; generally includes a credit check, verification of employment, and a property
appraisal.
Origination fee: the charge for originating a loan; is usually calculated
in the form of points and paid at closing.
P
Partial Claim: a loss mitigation option offered by the FHA that allows a
borrower, with help from a lender, to get an interest-free loan from HUD to bring their
mortgage payments up to date.
PITI: Principal, Interest, Taxes, and Insurance - the four elements of a
monthly mortgage payment; payments of principal and interest go directly towards repaying
the loan while the portion that covers taxes and insurance (homeowner's and mortgage, if
applicable) goes into an escrow account to cover the fees when they are due.
PMI: Private Mortgage Insurance; privately-owned companies that offer
standard and special affordable mortgage insurance programs for qualified borrowers with
down payments of less than 20% of a purchase price.
Pre-approve: lender commits to lend to a potential borrower; commitment
remains as long as the borrower still meets the qualification requirements at the time of
purchase.
Pre-foreclosure sale: allows a defaulting borrower to sell the mortgaged
property to satisfy the loan and avoid foreclosure.
Pre-qualify: a lender informally determines the maximum amount an
individual is eligible to borrow.
Premium: an amount paid on a regular schedule by a policyholder that
maintains insurance coverage.
Prepayment: payment of the mortgage loan before the scheduled due date;
may be Subject to a prepayment penalty.
Principal: the amount borrowed from a lender; doesn't include interest or
additional fees.
R
Radon: a radioactive gas found in some homes that, if occurring in strong
enough concentrations, can cause health problems.
Real estate agent: an individual who is licensed to negotiate and arrange
real estate sales; works for a real estate broker.
REALTOR: a real estate agent or broker who is a member of the NATIONAL
ASSOCIATION OF REALTORS, and its local and state associations.
Refinancing: paying off one loan by obtaining another; refinancing is
generally done to secure better loan terms (like a lower interest rate).
Rehabilitation mortgage: a mortgage that covers the costs of
rehabilitating (repairing or Improving) a property; some rehabilitation mortgages - like
the FHA's 203(k) - allow a borrower to roll the costs of rehabilitation and home purchase
into one mortgage loan.
RESPA: Real Estate Settlement Procedures Act; a law protecting consumers
from abuses during the residential real estate purchase and loan process by requiring
lenders to disclose all settlement costs, practices, and relationships
S
Settlement: another name for closing .
Special Forbearance: a loss mitigation option where the lender arranges a
revised repayment plan for the borrower that may include a temporary reduction or
suspension of monthly loan payments.
Subordinate: to place in a rank of lesser importance or to make one claim
secondary to another.
Survey: a property diagram that indicates legal boundaries, easements,
encroachments, rights of way, improvement locations, etc.
Sweat equity: using labor to build or improve a property as part of the
down payment
T
Title 1: an FHA-insured loan that allows a borrower to make non-luxury
improvements (like renovations or repairs) to their home; Title I loans less than $7,500
don't require a property lien.
Title insurance: insurance that protects the lender against any claims
that arise from arguments about ownership of the property; also available for homebuyers.
Title search: a check of public records to be sure that the seller is the
recognized owner of the real estate and that there are no unsettled liens or other claims
against the property.
Truth-in-Lending: a federal law obligating a lender to give fuII written
disclosure of aII fees, terms, and conditions associated with the loan initial period and
then adjusts to another rate that lasts for the term of the loan.
U
Underwriting: the process of analyzing a loan application to determine the amount
of risk involved in making the loan; it includes a review of the potential borrower's
credit history and a judgment of the property value.
V
VA: Department of Veterans Affairs: a federal agency which guarantees loans made
to veterans; similar to mortgage insurance, a loan guarantee protects lenders against loss
that may result from a borrower default.
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